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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to

Commission file number: 001-11015

 

Viad Corp

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

36-1169950

State or other jurisdiction of

incorporation or organization

 

(I.R.S. Employer

Identification No.)

 

 

1850 North Central Avenue, Suite 1900

Phoenix, Arizona

 

85004-4565

(Address of principal executive offices)

 

(Zip Code)

(602) 207-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $1.50 Par Value

 

VVI

 

New York Stock Exchange

Junior Participating Preferred Stock, par value $0.01 per share

 

 

--

 

--

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)    Yes      No  

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of June 15, 2020, there were 20,408,428 shares of Common Stock ($1.50 par value) outstanding.

 


 

INDEX

 

 

 

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

1

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019

2

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

3

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019

4

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

42

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

Item 6.

Exhibits

48

Items 3-5

Not applicable

 

 

 

 

SIGNATURES

49

 

EXPLANATORY NOTE

In this report, for periods presented, “we,” “us,” “our,” “the Company,” and “Viad Corp” refer to Viad Corp and its subsidiaries.

The SEC issued an order on March 4, 2020, and as revised on March 25, 2020, pursuant to Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), granting exemptions from specified provisions of the Exchange Act and certain rules thereunder, (Release No. 34-88465) (the “SEC Order”). The SEC Order provides that a registrant subject to the reporting requirements of Exchange Act Section 13(a) or 15(d), and any person required to make any filings with respect to such registrant, is exempt from any requirement to file or furnish materials with the Commission under Exchange Act Sections 13(a), 13(f), 13(g), 14(a), 14(c), 14(f), 15(d) and Regulations 13A, Regulation 13D-G (except for those provisions mandating the filing of Schedule 13D or amendments to Schedule 13D), 14A, 14C and 15D, and Exchange Act Rules 13f-1, and 14f-1, as applicable, if certain conditions are satisfied.

We relied on the SEC Order to delay the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 due to circumstances related to the coronavirus pandemic (“COVID-19”).

We have experienced extreme disruption to our business and operations due to the unprecedented conditions surrounding COVID-19. As a result of the COVID-19 adverse effects, we were required to conduct additional impairment testing and other complex financial analysis in order to complete our financial statements and review for the quarter ended March 31, 2020. A significant portion of our finance and accounting personnel are either on furlough or working reduced hours, and we are requiring all of our personnel to work remotely, which has increased the difficulty of completing these required reviews.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

VIAD CORP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

(in thousands, except share data)

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

130,528

 

 

$

61,999

 

Accounts receivable, net of allowances for doubtful accounts of $10,154 and $1,200,

   respectively

 

 

112,081

 

 

 

126,246

 

Inventories

 

 

17,528

 

 

 

17,269

 

Current contract costs

 

 

14,999

 

 

 

24,535

 

Other current assets

 

 

37,377

 

 

 

30,854

 

Total current assets

 

 

312,513

 

 

 

260,903

 

Property and equipment, net

 

 

481,622

 

 

 

500,901

 

Other investments and assets

 

 

45,544

 

 

 

45,119

 

Operating lease right-of-use assets

 

 

96,719

 

 

 

103,314

 

Deferred income taxes

 

 

37,228

 

 

 

26,163

 

Goodwill

 

 

204,613

 

 

 

287,983

 

Other intangible assets, net

 

 

69,222

 

 

 

94,308

 

Total Assets

 

$

1,247,461

 

 

$

1,318,691

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

86,050

 

 

$

86,660

 

Contract liabilities

 

 

36,750

 

 

 

50,671

 

Accrued compensation

 

 

12,652

 

 

 

32,658

 

Operating lease obligations

 

 

20,708

 

 

 

22,180

 

Other current liabilities

 

 

46,750

 

 

 

39,824

 

Current portion of debt and finance lease obligations

 

 

420,830

 

 

 

5,330

 

Total current liabilities

 

 

623,740

 

 

 

237,323

 

Long-term debt and finance lease obligations

 

 

18,016

 

 

 

335,162

 

Pension and postretirement benefits

 

 

25,921

 

 

 

26,247

 

Long-term operating lease obligations

 

 

78,685

 

 

 

82,851

 

Other deferred items and liabilities

 

 

75,743

 

 

 

83,707

 

Total liabilities

 

 

822,105

 

 

 

765,290

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

4,908

 

 

 

6,172

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Viad Corp stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares

   issued and outstanding

 

 

37,402

 

 

 

37,402

 

Additional capital

 

 

570,859

 

 

 

574,473

 

Retained earnings

 

 

34,347

 

 

 

122,971

 

Accumulated other comprehensive loss

 

 

(63,543

)

 

 

(35,699

)

Common stock in treasury, at cost, 4,544,371 and 4,588,084 shares, respectively

 

 

(229,770

)

 

 

(231,649

)

Total Viad stockholders’ equity

 

 

349,295

 

 

 

467,498

 

Non-redeemable noncontrolling interest

 

 

71,153

 

 

 

79,731

 

Total stockholders’ equity

 

 

420,448

 

 

 

547,229

 

Total Liabilities and Stockholders’ Equity

 

$

1,247,461

 

 

$

1,318,691

 

 

Refer to Notes to Condensed Consolidated Financial Statements.

1


 

VIAD CORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands, except per share data)

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Services

 

$

275,556

 

 

$

250,641

 

Products

 

 

30,452

 

 

 

34,953

 

Total revenue

 

 

306,008

 

 

 

285,594

 

Costs and expenses:

 

 

 

 

 

 

 

 

Costs of services

 

 

284,402

 

 

 

263,356

 

Costs of products

 

 

31,006

 

 

 

33,474

 

Corporate activities

 

 

789

 

 

 

1,833

 

Interest income

 

 

(79

)

 

 

(98

)

Interest expense

 

 

4,018

 

 

 

2,915

 

Other expense

 

 

419

 

 

 

455

 

Restructuring charges

 

 

851

 

 

 

688

 

Legal settlement

 

 

 

 

 

8,500

 

Impairment charges

 

 

88,380

 

 

 

 

Total costs and expenses

 

 

409,786

 

 

 

311,123

 

Loss from continuing operations before income taxes

 

 

(103,778

)

 

 

(25,529

)

Income tax benefit

 

 

(15,797

)

 

 

(7,595

)

Loss from continuing operations

 

 

(87,981

)

 

 

(17,934

)

Loss from discontinued operations

 

 

(454

)

 

 

(287

)

Net loss

 

 

(88,435

)

 

 

(18,221

)

Net loss attributable to non-redeemable noncontrolling

   interest

 

 

1,333

 

 

 

420

 

Net loss attributable to redeemable noncontrolling interest

 

 

517

 

 

 

24

 

Net loss attributable to Viad

 

$

(86,585

)

 

$

(17,777

)

Diluted loss per common share:

 

 

 

 

 

 

 

 

Continuing operations attributable to Viad common stockholders

 

$

(4.27

)

 

$

(0.88

)

Discontinued operations attributable to Viad common stockholders

 

 

(0.02

)

 

 

(0.01

)

Net loss attributable to Viad common stockholders

 

$

(4.29

)

 

$

(0.89

)

Weighted-average outstanding and potentially dilutive common

   shares

 

 

20,215

 

 

 

20,076

 

Basic loss per common share:

 

 

 

 

 

 

 

 

Continuing operations attributable to Viad common stockholders

 

$

(4.27

)

 

$

(0.88

)

Discontinued operations attributable to Viad common stockholders

 

 

(0.02

)

 

 

(0.01

)

Net loss attributable to Viad common stockholders

 

$

(4.29

)

 

$

(0.89

)

Weighted-average outstanding common shares

 

 

20,215

 

 

 

20,076

 

Dividends declared per common share

 

$

0.10

 

 

$

0.10

 

Amounts attributable to Viad common stockholders

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(86,131

)

 

$

(17,490

)

Loss from discontinued operations

 

 

(454

)

 

 

(287

)

Net loss

 

$

(86,585

)

 

$

(17,777

)

 

Refer to Notes to Condensed Consolidated Financial Statements.

2


 

VIAD CORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2020

 

 

2019

 

Net loss

 

$

(88,435

)

 

$

(18,221

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized foreign currency translation adjustments

 

 

(28,158

)

 

 

4,780

 

Change in net actuarial loss, net of tax (1)

 

 

341

 

 

 

120

 

Change in prior service cost, net of tax (1)

 

 

(27

)

 

 

(35

)

Comprehensive loss

 

 

(116,279

)

 

 

(13,356

)

Non-redeemable noncontrolling interest:

 

 

 

 

 

 

 

 

Comprehensive loss attributable to non-redeemable

   noncontrolling interest

 

 

1,333

 

 

 

420

 

Unrealized foreign currency translation adjustments

 

 

(5,719

)

 

 

 

Redeemable noncontrolling interest:

 

 

 

 

 

 

 

 

Comprehensive loss attributable to redeemable noncontrolling interest

 

 

517

 

 

 

24

 

Comprehensive loss attributable to Viad

 

$

(120,148

)

 

$

(12,912

)

 

(1)

The tax effect on other comprehensive income (loss) is not significant.

Refer to Notes to Condensed Consolidated Financial Statements.

3


 

VIAD CORP

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

(in thousands)

 

Common

Stock

 

 

Additional

Capital

 

 

Retained

Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Common

Stock in

Treasury

 

 

Total

Viad

Equity

 

 

Non-Redeemable Non-Controlling

Interest

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2019

 

$

37,402

 

 

$

574,473

 

 

$

122,971

 

 

$

(35,699

)

 

$

(231,649

)

 

$

467,498

 

 

$

79,731

 

 

$

547,229

 

Net loss

 

 

 

 

 

 

 

 

(86,585

)

 

 

 

 

 

 

 

 

(86,585

)

 

 

(1,333

)

 

 

(87,918

)

Dividends on common stock ($0.10 per share)

 

 

 

 

 

 

 

 

(2,038

)

 

 

 

 

 

 

 

 

(2,038

)

 

 

 

 

 

(2,038

)

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,526

)

 

 

(1,526

)

Payment of payroll taxes on stock-based compensation through shares withheld

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,059

)

 

 

(1,059

)

 

 

 

 

 

(1,059

)

Common stock purchased for treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,785

)

 

 

(2,785

)

 

 

 

 

 

(2,785

)

Employee benefit plans

 

 

 

 

 

(3,810

)

 

 

 

 

 

 

 

 

5,722

 

 

 

1,912

 

 

 

 

 

 

1,912

 

Share-based compensation - equity awards

 

 

 

 

 

276

 

 

 

 

 

 

 

 

 

 

 

 

276

 

 

 

 

 

 

276

 

Unrealized foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

(28,158

)

 

 

 

 

 

(28,158

)

 

 

(5,719

)

 

 

(33,877

)

Amortization of net actuarial loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

341

 

 

 

 

 

 

341

 

 

 

 

 

 

341

 

Amortization of prior service cost, net of tax

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

 

(27

)

 

 

 

 

 

(27

)

Other, net

 

 

 

 

 

(80

)

 

 

(1

)

 

 

 

 

 

1

 

 

 

(80

)

 

 

 

 

 

(80

)

Balance, March 31, 2020

 

$

37,402

 

 

$

570,859

 

 

$

34,347

 

 

$

(63,543

)

 

$

(229,770

)

 

$

349,295

 

 

$

71,153

 

 

$

420,448

 

Refer to Notes to Condensed Consolidated Financial Statements.

4


 

VIAD CORP

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(Unaudited)

 

(in thousands)

 

Common

Stock

 

 

Additional

Capital

 

 

Retained

Earnings

 

 

Unearned

Employee Benefits

and Other

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Common

Stock in

Treasury

 

 

Total

Viad

Equity

 

 

Non-Redeemable Non-Controlling

Interest

 

 

Total

Stockholders’

Equity

 

Balance, December 31, 2018

 

$

37,402

 

 

$

575,339

 

 

$

109,032

 

 

$

199

 

 

$

(47,975

)

 

$

(237,790

)

 

$

436,207

 

 

$

14,348

 

 

$

450,555

 

Net loss

 

 

 

 

 

 

 

 

(17,777

)

 

 

 

 

 

 

 

 

 

 

 

(17,777

)

 

 

(420

)

 

 

(18,197

)

Dividends on common stock ($0.10 per share)

 

 

 

 

 

 

 

 

(2,028

)

 

 

 

 

 

 

 

 

 

 

 

(2,028

)

 

 

 

 

 

(2,028

)

Payment of payroll taxes on stock-based compensation through shares withheld

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,905

)

 

 

(2,905

)

 

 

 

 

 

(2,905

)

Employee benefit plans

 

 

 

 

 

(4,302

)

 

 

 

 

 

 

 

 

 

 

 

5,522

 

 

 

1,220

 

 

 

 

 

 

1,220

 

Share-based compensation - equity awards

 

 

 

 

 

780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

780

 

 

 

 

 

 

780

 

Unrealized foreign currency translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,780

 

 

 

 

 

 

4,780

 

 

 

 

 

 

4,780

 

Amortization of net actuarial loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

 

 

 

 

 

120

 

Amortization of prior service cost, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

(35

)

 

 

 

 

 

(35

)

Other, net

 

 

 

 

 

16

 

 

 

 

 

 

24

 

 

 

 

 

 

1

 

 

 

41

 

 

 

 

 

 

41

 

Balance, March 31, 2019

 

$

37,402

 

 

$

571,833

 

 

$

89,227

 

 

$

223

 

 

$

(43,110

)

 

$

(235,172

)

 

$

420,403

 

 

$

13,928

 

 

$

434,331

 

Refer to Notes to Condensed Consolidated Financial Statements.

5


 

VIAD CORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(88,435

)

 

$

(18,221

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

15,285

 

 

 

13,188

 

Deferred income taxes

 

 

(15,799

)

 

 

(9,098

)

Loss from discontinued operations

 

 

454

 

 

 

287

 

Restructuring charges

 

 

851

 

 

 

688

 

Legal settlement

 

 

 

 

 

8,500

 

Impairment charges

 

 

88,380

 

 

 

 

Gains on dispositions of property and other assets

 

 

(85

)

 

 

(551

)

Share-based compensation (benefit) expense

 

 

(2,145

)

 

 

2,206

 

Other non-cash items, net

 

 

9,342

 

 

 

1,041

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

15,651

 

 

 

(25,545

)

Inventories

 

 

(711

)

 

 

(874

)

Current contract costs

 

 

8,970

 

 

 

(4,838

)

Accounts payable

 

 

(1,109

)

 

 

12,868

 

Restructuring liabilities

 

 

(1,293

)

 

 

(714

)

Accrued compensation

 

 

(20,551

)

 

 

(7,490

)

Contract liabilities

 

 

(12,602

)

 

 

32,379

 

Payments on operating lease obligations

 

 

(6,529

)

 

 

(6,198

)

Income taxes payable

 

 

17,753

 

 

 

6

 

Other assets and liabilities, net

 

 

(12,146

)

 

 

10,386

 

Net cash (used in) provided by operating activities

 

 

(4,719

)

 

 

8,020

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(23,246

)

 

 

(19,543

)

Proceeds from dispositions of property and other assets

 

 

85

 

 

 

611

 

Net cash used in investing activities

 

 

(23,161

)

 

 

(18,932

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

160,755

 

 

 

28,347

 

Payments on debt and finance lease obligations

 

 

(56,077

)

 

 

(14,376

)

Dividends paid on common stock

 

 

(2,038

)

 

 

(2,028

)

Distributions to noncontrolling interest

 

 

(1,526

)

 

 

 

Payment of payroll taxes on stock-based compensation through shares withheld or repurchased

 

 

(1,059

)

 

 

(2,905

)

Common stock purchased for treasury

 

 

(2,785

)

 

 

 

Proceeds from exercise of stock options

 

 

2,077

 

 

 

 

Net cash provided by financing activities

 

 

99,347

 

 

 

9,038

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,938

)

 

 

454

 

Net change in cash and cash equivalents

 

 

68,529

 

 

 

(1,420

)

Cash and cash equivalents, beginning of year

 

 

61,999

 

 

 

44,893

 

Cash and cash equivalents, end of period

 

$

130,528

 

 

$

43,473

 

 

Refer to Notes to Condensed Consolidated Financial Statements.

6


 

VIAD CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1. Overview and Basis of Presentation

Nature of Business

We are an international experiential services company with operations in the United States, Canada, the United Kingdom, continental Europe, the United Arab Emirates, and Iceland. We are committed to providing unforgettable experiences to our clients and guests. We operate through three reportable business segments: GES North America, GES EMEA (collectively, “GES”), and Pursuit.

GES

GES is a global, full-service live events company offering a comprehensive range of services to event organizers and corporate brand marketers. Event organizers schedule and run events from start to finish. Corporate brand marketers include exhibitors and domestic and international corporations that want to promote their brands, services and innovations, feature new products, and build business relationships. GES serves corporate brand marketers when they exhibit at shows and when GES is engaged to manage their global exhibit program or produce their proprietary corporate events.

Pursuit

Pursuit is a collection of inspiring and unforgettable travel experiences that include recreational attractions, unique hotels and lodges, food and beverage, retail, sightseeing, and ground transportation services. Pursuit comprises the Banff Jasper Collection, the Alaska Collection, the Glacier Park Collection, and FlyOver.

Impact of COVID-19 and Going Concern

On March 11, 2020, the World Health Organization declared COVID-19 a “pandemic.” COVID-19 has spread rapidly, with a high concentration of confirmed cases in the U.S. and other countries in which we operate. The rapid spread has resulted in authorities around the world implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, and business shutdowns. The COVID-19 pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on businesses around the world and on global, regional, and national economies.

The COVID-19 pandemic is having and will likely continue to have a significant and negative impact on our operations and financial performance, with live event and tourism activities largely shut down. As a result, we have taken the following measures to improve our liquidity position due to COVID-19:

 

On March 17, 2020, we borrowed $123 million under the revolving credit facility (the “2018 Credit Facility”) as a proactive measure to increase our cash position and preserve financial flexibility. At the end of March 2020, we repaid $32 million and in early April 2020, we borrowed $31 million under the 2018 Credit Facility. Refer to Note 12 – Debt and Finance Lease Obligations and Note 24 – Subsequent Events;

 

We implemented aggressive cost reduction actions, including furloughs, mandatory unpaid time off, or salary reductions for all employees;

 

Our executive management voluntarily reduced its base salaries by 20% to 50%;

 

The non-employee members of our Board of Directors agreed to reduce their annual cash retainer and committee retainers by 50% for payments typically made to them in the second quarter of 2020;

 

We have eliminated all non-essential capital expenditures and discretionary spending;

 

In March 2020, our Board of Directors suspended future dividend payments and share repurchases;

 

On April 20, 2020, we suspended our 401(k) Plan employer match contributions. Refer to Note 24 – Subsequent Events;

 

On May 8, 2020, we obtained a waiver of our financial covenants for the quarter ending June 30, 2020. Refer to Note 12 – Debt and Finance Lease Obligations and Note 24 – Subsequent Events;

 

We availed ourselves of governmental assistance programs for wages and tax relief; and

 

In May 2020, we terminated our legacy life insurance policies on former employees and received the cash proceeds of $24.8 million. Refer to Note 8 – Other Investments and Assets and Note 24 – Subsequent Events.

 

Although we were in compliance with the financial covenants of our Second Amended and Restated Credit Agreement (the “2018 Credit Agreement”) as of March 31, 2020, disruptions caused by the COVID-19 pandemic have had and are likely to continue to have

7


 

a significant and negative impact on our operations and financial performance. In May 2020, we entered into an amendment to our 2018 Credit Agreement, which waived our financial covenants for the quarter ending June 30, 2020 and added a new minimum liquidity requirement. However, we expect to be unable to meet our financial covenants beginning with the quarter ending September 30, 2020, and as a result, the entire $412.6 million balance outstanding under the 2018 Credit Facility as of March 31, 2020 has been classified as a current liabilityWe are actively negotiating with our lenders to further amend our 2018 Credit Agreement, and we are pursuing options to raise capital and enhance our liquidity position. We cannot provide any assurance regarding the likelihood, certainty, or exact timing of our ability to raise capital or our ability to obtain further amendments to the 2018 Credit Agreement in a timely manner, or on acceptable terms, if at all. If we are unable to raise capital or obtain a waiver to our financial covenants, our lenders may exercise remedies against us, including the acceleration of our outstanding indebtedness. We also expect to be unable to meet our financial covenants under our FlyOver Iceland Credit Facility beginning with the quarter ending September 30, 2020, and as a result, the $5.3 million balance outstanding as of March 31, 2020 has been classified as a current liability. We have concluded that the shut-down of live event and tourism activities resulting in substantial net losses and operating cash outflows and the expected inability to maintain compliance with debt covenants discussed above raise substantial doubt about our ability to continue as a going concern for a period through one year from the issuance of the financial statements. We have prepared the financial statements on a going concern basis, which do not include any adjustments that might result from the outcome of this uncertainty.

Due to the deteriorating macroeconomic environment, disruptions to our operations, and the sustained decline in our stock price caused by COVID-19, we determined an interim triggering event had occurred, which required us to assess the carrying values of goodwill and intangible assets in accordance with Accounting Standards Codification (“ASC”) No. 350, Intangibles – Goodwill and Other. Based on this assessment, we recorded a non-cash goodwill impairment charge of $72.7 million during the three months ended March 31, 2020 associated with the GES U.S., GES EMEA, and Pursuit’s Glacier Park Collection reporting units. Additionally, during the three months ended March 31, 2020, we recorded a non-cash impairment charge to other intangible assets of $15.7 million related to our U.S. audio-visual production business. The duration and impact of COVID-19 may result in additional future impairment charges as facts and circumstances evolve. Refer to Note 9 – Goodwill and Other Intangible Assets for additional information.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP or SEC rules and regulations for complete financial statements. These financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 26, 2020 (“2019 Form 10-K”). We corrected the classification of debt as of December 31, 2019. Refer to Note 12 – Debt and Finance Lease Obligations.

The condensed consolidated financial statements include the accounts of Viad and its subsidiaries. We have eliminated all significant intercompany account balances and transactions in consolidation.

Impact of Recent Accounting Pronouncements

The following table provides a brief description of recent accounting pronouncements:

 

Standard

 

Description

 

Date of adoption

 

Effect on the financial statements

Standards Not Yet Adopted

ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes

 

The amendment enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as ownership changes in investments, and interim-period accounting for enacted changes in tax law.

 

1/1/2021

 

We are currently evaluating the potential impact of the adoption of this new guidance on our consolidated financial statements. We do not expect this new guidance to have a material impact on our consolidated financial statements.

 

8


 

Standard

 

Description

 

Date of adoption

 

Effect on the financial statements

Standards Recently Adopted

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments

 

The amendment eliminates the incurred credit loss impairment methodology and replaces it with an expected credit loss concept based on historical experience, current conditions, and reasonable and supportable forecasts.

 

1/1/2020

 

We adopted this new standard on a modified retrospective basis. The adoption of this new standard on January 1, 2020 did not have a material impact on our condensed consolidated financial statements. However, due to the significant economic impact of COVID-19, we recorded an increase of $2.8 million to the provision for credit losses during March 2020.

ASU 2020-04, Reference Rate Reform (Topic 848)

 

The amendment provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. Topic 848 provides optional expedients and exceptions for applying U.S. GAAP to transactions affected by reference rate reform if certain criteria are met.

 

3/12/2020

 

Topic 848 was effective beginning on March 12, 2020, and we will apply the amendments prospectively through December 31, 2022. There was no impact to our condensed consolidated financial statements for the quarter ended March 31, 2020 as a result of adopting this amendment.

 

 

 

Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Estimates and assumptions are used in accounting for, among other things: impairment testing of recorded goodwill and intangible assets; allowances for uncollectible accounts receivable; provisions for income taxes, including uncertain tax positions; valuation allowances related to deferred tax assets; liabilities for losses related to self-insured liability claims; liabilities for losses related to environmental remediation obligations; sublease income associated with restructuring liabilities; pension and postretirement benefit costs and obligations; share-based compensation costs; the discount rates used to value lease obligations; the redemption value of redeemable noncontrolling interests; and the allocation of purchase price of acquired businesses. Actual results could differ from these and other estimates.

Revenue Recognition

Revenue is measured based on a specified amount of consideration in a contract with a customer, net of commissions paid to customers and amounts collected on behalf of third parties. We recognize revenue when a performance obligation is satisfied by transferring control of a product or service to a customer.

GES’ service revenue is primarily derived through its comprehensive range of services to event organizers and corporate brand marketers including Core Services, Event Technology, and Audio-Visual. GES’ service revenue is earned over time over the duration of the exhibition, conference, or corporate event, which generally lasts one to three days. GES’ product revenue is derived from the build of exhibits and environments and graphics. GES’ product revenue is recognized at a point in time upon delivery of the product.

Pursuit’s service revenue is derived through its admissions, accommodations, transportation, and travel planning services. Pursuit’s product revenue is derived through food and beverage and retail sales. Pursuit’s revenue is recognized at the time services are performed or upon delivery of the product. Pursuit’s service revenue is recognized over time as the customer simultaneously receives and consumes the benefits. Pursuit’s product revenue is recognized at a point in time.

Noncontrolling Interests – Non-redeemable and Redeemable

Non-redeemable noncontrolling interest represents the portion of equity in a subsidiary that is not attributable, directly or indirectly, to us. Our non-redeemable noncontrolling interest relates to the 20% equity ownership interest that we do not own in Glacier Park, Inc., the 40% equity interest that we do not own in the Mountain Park Lodges, and the 49% equity interest that we do not own in the new entity that will operate the Pursuit Sky Lagoon attraction. We report non-redeemable noncontrolling interest within stockholders’ equity in the Condensed Consolidated Balance Sheets. The amount of consolidated net income or loss attributable to Viad and the non-redeemable noncontrolling interest is presented in the Condensed Consolidated Statements of Operations.

We consider noncontrolling interests with redemption features that are not solely within our control to be redeemable noncontrolling interests. Our redeemable noncontrolling interest relates to our 54.5% equity ownership interest in Esja Attractions ehf. (“Esja”), which owns the FlyOver Iceland attraction. The Esja shareholders agreement contains a put option that gives the minority Esja

9


 

shareholders the right to sell (or “put”) their Esja shares to us based on a calculated formula within a predefined term. This redeemable noncontrolling interest is considered temporary equity and we report it between liabilities and stockholders’ equity in the Condensed Consolidated Balance Sheets. The amount of the net income or loss attributable to redeemable noncontrolling interests is recorded in the Condensed Consolidated Statements of Operations and the accretion of the redemption value is recorded as an adjustment to retained earnings and is included in our income per share. Refer to Note 21 – Redeemable Noncontrolling Interest for additional information.

Leases

We recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet and classify leases as either finance or operating leases. The classification of the lease determines whether we recognize the lease expense on an effective interest method basis (finance lease) or on a straight-line basis (operating lease) over the lease term. In determining whether an agreement contains a lease, we consider if we have a right to control the use of the underlying asset during the lease term in exchange for an obligation to make lease payments arising from the lease. We recognize ROU assets and lease liabilities at commencement date, which is when the underlying asset is available for use to a lessee, based on the present value of lease payments over the lease term.

Our operating and finance leases are primarily facility, equipment, and land leases. Our facility leases comprise mainly manufacturing facilities, sales and design facilities, offices, storage and/or warehouses, and truck marshaling yards. These facility leases generally have lease terms ranging up to 25 years. Our equipment leases comprise mainly vehicles, hardware, and office equipment, each with various lease terms. Our land leases comprise mainly leases in Canada and Iceland on which our hotels or attractions are located and have lease terms ranging up to 42 years.

If a lease contains a renewal option that is reasonably certain to be exercised, then the lease term includes the optional periods in measuring a ROU asset and lease liability. We evaluate the reasonably certain threshold at lease commencement, and it is typically met if we identify substantial economic incentives or termination penalties. We do not include variable leases and variable non-lease components in the calculation of the ROU asset and corresponding lease liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which we pay our lessors an estimate that we adjust to actual expense on a quarterly or annual basis depending on the underlying contract terms. We